The Obama Administration finally seems to have noticed that all of their policy announcements so far have only fueled economic despair, not alleviated it. So President Barack Obama took the rare opportunity yesterday of offering some investment advice to the American people: "What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it." In other words, Obama wants Americans to Buy! Buy! Buy!
But before you rush out and follow President Obama's investment advice, consider this: last week Obama's Treasury Department announced that the government would take a 36% stake in Citigroup by converting $25 billion of its preferred shares into common stock. The Treasury paid $3.25 a share for the stock last week, which after a weekend's worth of government nationalization rumors fell to $1.20 by Monday. So to recap, President Obama managed to lose billions of taxpayer invested dollars in just a few days. But that's not even the worst part. So far the government has poured $50 billion into Citigroup. Meanwhile, Citi's market capitalization is only $6.54 billion. In other words, taxpayers could have bought Citi eight times over already for all the money they have thrown at it.
We are in no way suggesting that President Obama should have, or should now nationalize Citigroup. What the Citi story does highlight though, are the perils and conflicts that make massive and intrusive government intervention in the economy a disaster for all involved. Congress has no idea how to run a bank, and that is why all the political posturing in the House and Senate is completely undermining the stabilization of the banking sector. Meanwhile, the private sector has no incentive to create jobs since they are facing a $1.3 trillion tax hike in the coming decade. Then there is the $646 billion tax hike every American will see in their energy bills from President Obama's promised carbon capping plans. It is no wonder that nobody is taking Obama's investment advice.
The only sector of the economy that is sure to grow under Obama is the public sector. Our own Center for Data Analysis estimates that President Obama's budget will require over 250,000 new government employees. Other expert estimates put the number at 100,000. Another big winner under Obama's big government: lobbyists. Democratic staffers are now commanding $350,000 to $450,000 salaries at prestigious K Street lobbying firms. At least somebody is benefiting from this Obama economy.
But before you rush out and follow President Obama's investment advice, consider this: last week Obama's Treasury Department announced that the government would take a 36% stake in Citigroup by converting $25 billion of its preferred shares into common stock. The Treasury paid $3.25 a share for the stock last week, which after a weekend's worth of government nationalization rumors fell to $1.20 by Monday. So to recap, President Obama managed to lose billions of taxpayer invested dollars in just a few days. But that's not even the worst part. So far the government has poured $50 billion into Citigroup. Meanwhile, Citi's market capitalization is only $6.54 billion. In other words, taxpayers could have bought Citi eight times over already for all the money they have thrown at it.
We are in no way suggesting that President Obama should have, or should now nationalize Citigroup. What the Citi story does highlight though, are the perils and conflicts that make massive and intrusive government intervention in the economy a disaster for all involved. Congress has no idea how to run a bank, and that is why all the political posturing in the House and Senate is completely undermining the stabilization of the banking sector. Meanwhile, the private sector has no incentive to create jobs since they are facing a $1.3 trillion tax hike in the coming decade. Then there is the $646 billion tax hike every American will see in their energy bills from President Obama's promised carbon capping plans. It is no wonder that nobody is taking Obama's investment advice.
The only sector of the economy that is sure to grow under Obama is the public sector. Our own Center for Data Analysis estimates that President Obama's budget will require over 250,000 new government employees. Other expert estimates put the number at 100,000. Another big winner under Obama's big government: lobbyists. Democratic staffers are now commanding $350,000 to $450,000 salaries at prestigious K Street lobbying firms. At least somebody is benefiting from this Obama economy.
The key to economic recovery is the banking industry. Unfortunately for America, Obama is aiming squarely to take over that industry. He's already got a huge stake in Citi, the largest financial institution in the country, and hooks into hundreds of other banks that have taken TARP or bailout money. Once these companies and banks give the federal government control over their operations and assets, one of the biggest moves in socializing the country will be complete through control of the flow of money.
Heritage's illustration above is what has been said on this blog several times - government will run these companies according to political whims rather than business calculations, and that means it will be run very, very poorly. After all, the federal government has spent $50 billion on a company that is currently worth less than $7 billion, and it still has only a 36% ownership share! Incompetence at its political finest.
So, the question is: how is this good for business? If it's not good for business, then it's not good for either the employees or the customers.
And that's what we're facing in all manner of companies and industries now, if Obama gets his way.
There's my two cents.
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